CBS Moneywatch, October 11th, 2010
This post continues my series that advocates using IRAs, 401k plans,
and other retirement savings to generate a lifetime monthly paycheck.
The kickoff post summarized three ways to generate retirement income:
- Invest your savings, and spend just the interest and dividends.
- Invest your savings, but draw down principal cautiously so you don’t outlive your assets.
- Buy an immediate annuity from an insurance company.
I covered option No. 1 in my second post and option No. 2 in my third post.
In this fourth post of the series, I’ll explore the third method — buy
an immediate annuity from an insurance company — in greater detail.
For those people who don’t have substantial lifetime pensions from
their employer, I like the idea of using an immediate fixed annuity for a
portion of their retirement savings. This option provides a monthly
paycheck for the rest of your life, no matter how long you live and no
matter what happens in the economy or the stock market.
An immediate fixed annuity protects against two significant
retirement risks: investment risk, which is the risk of your investments
declining in value, and longevity risk, or the risk you’ll live longer
than expected. It won’t protect you against another serious retirement
risk — inflation — and that’s why you shouldn’t invest all your
retirement savings in an immediate fixed annuity.
Annuities: Is an annuity the right move for your 401(k) savings? What is the process that you have to go through to actually get an annuity? Find out more about your options at NewRetirement.com.